When a corporation withdraws from a venture, partnership, open market, or other business agreement, the legal ramifications of such an action must be carefully considered. Withdrawal of a corporation carries legal and financial implications that can have both short-term and long-term impacts for the corporation, its business partners, and its shareholders. It is important to be aware of what withdrawal of a corporation involves, and of the steps that should be taken in order to ensure that the process is done in accordance with the law.
Implications for the Corporation
When a corporation withdraws, it typically has to file a dissolution resolution with the local secretary of state’s office. This document terminates the corporation’s business—meaning that any contracts, loans, or agreements that the corporation entered into will be terminated. Other obligations, such as taxes, may still need to be completed by the corporation.
Depending on the withdrawal’s timing and the state’s requirements, the corporation may need to file a Certificate of Cancellation or follow certain winding-up requirements. It is also important to note that, in some cases, a corporation may need to secure a deed of dissolution from shareholders in order to fully dissolve. Further, the corporation needs to ensure that all of its assets are accounted for and disposed of accordingly.
Implications for Business Partners and Shareholders
The withdrawal of a corporation can have serious implications for any business partners or shareholders. If the corporation is a partner in an agreement, the terms in the agreement will likely determine the process for the partner’s notice and remedy upon the corporation’s withdrawal. Typically, a withdrawal of a corporation does not relieve the partner’s remaining obligations under the agreement.
For shareholders, the process of withdrawing a corporation can also be complex. Depending on the type of withdrawal, the shareholders may be held jointly and severally liable for the corporation’s debts and obligations. Further, the withdrawal may trigger the discontinuation of the corporation’s tax status or otherwise affect its assets.
Conclusion
Given the legal and financial implications of withdrawal of a corporation, it is important to consult with a business law attorney to understand the complexities of the process and to ensure that the withdrawal is done properly. An experienced attorney can advise on the specific steps that need to be taken and can ensure that the process of withdrawing the corporation is smooth and in accordance with the law.